Could a Trade War Jump-Start a Breakout in Gold?

The trade war is heating up. Could it jump-start a breakout in gold?

Some analysts think so.

China fired a salvo in what could become a full-blown trade war on Monday. The Asian nation slapped tariffs of up to 25% on 128 US products including frozen pork, wine and steel pipes in retaliation for US tariffs levied on Chinese steel and aluminum.

Meanwhile, the US plans to impose more tariffs on China – this time targeting tech goods. The Trump administration will reportedly release a list of advanced technology imports targeted for tariffs totaling $50 to $60 billion. According to a Reuters report, “The tariffs are aimed at forcing changes to Chinese government policies that USTR says results in the ‘uneconomic’ transfer of US intellectual property to Chinese companies.”

Stocks tanked on the news of Chinese tariff retaliation. The Dow Jones fell 459 points Monday, and the S&P 500 dropped into correction territory, having now fallen 10% from its all-time high.

Meanwhile, gold was up about 1% Monday as the dollar lost more ground.

Some mainstream analysts are now talking about $1,400 gold as the trade war intensifies. Sprott US Holdings Inc. CEO Rick Rule is one of the people bullish on gold. He told Bloomberg gold could top $1,400 an ounce as escalating trade tensions drive investors into safe-havens. He also said he thinks we’re at the end of a three-decade bull market in bonds.

In the 40 years I’ve been involved in the gold market, the most important determinant of the gold price has been international confidence in the US dollar and in particular, the US dollar as expressed by the US 10-year Treasury. The fact that the US seems to be bound to engage in a zero-sum trade war has begun to strike people as something that’s bad for everybody in the world, not just the US The potential for a winnerless trade war certainly gives cause to some concern.”

Rule isn’t alone in thinking a trade war might be good for gold. An RT headline proclaimed “gold glitters as US-China trade war escalates.”

“The trade war is going on and it is getting worse, so that might be the reason that people are selling dollars and buying gold,” Yuichi Ikemizu at ICBC Standard Bank in Tokyo said. He went on to say he thinks more investors will be lured into the gold market.

Even the most steel-nerved trader will be tempted to go in now.”

Peter Schiff has been saying stocks are already in a bear market. Could a trade war shove them completely over the edge?

Last week, Peter said gold is poised for a breakout. If trade tensions persist and gold does hit $1,400, that could be the beginning of a long climb up. As Peter said, there is little resistance to stop a bull run once the breakout happens and not much to stop it from going to $1,500 or $1,600. There won’t be a lot of sellers at those prices, but there will be plenty of buyers. Momentum buyers will come into the market.

Once gold breaks out, nobody is prepared for it.”

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